J.C. Penney Co. (JCP:US) adopted a shareholder rights plan to protect against takeovers for a year as the department-store chain works to recover from its worst annual sales in more than two decades.
The plan would be triggered if a person or group acquires 10 percent or more of the company’s shares or commences a tender or exchange offer that would result in someone owning more than that portion of the shares, the Plano, Texas-based retailer said today in a statement.
Chief Executive Officer Mike Ullman is trying to undo the damage from his predecessor’s failed turnaround plan, which led to plunging sales and a dwindling cash pile. The company last week ended a struggle with activist investor Bill Ackman over his call to remove Chairman Tom Engibous and replace Ullman more quickly. Ackman and Vornado Realty Trust (VNO:US) had been pressing for changes at J.C. Penney since acquiring stakes in 2010.
“The obvious reason is to avert any future situations as arose with Ackman and Vornado,” Bernard Sosnick, an analyst with Gilford Securities in New York, said in a telephone interview. “It was a horrible situation and it puts an end to that.” Sosnick recommends buying the shares.
J.C. Penney fell 1 percent to $13.20 at the close in New York. The shares have slid 33 percent this year, compared with a 16 percent gain for the Standard & Poor’s 500 Index.
J.C. Penney said the rights plan wasn’t instituted in response to any effort to take control of the company. Its “acquiring person” provisions won’t be triggered by Vornado or Ackman’s Pershing Square Capital Management LP as long as their ownership is permitted under certain agreements with the company, the retailer said. The company declined to say what related agreements are already in place with Ackman and Vornado.
Vornado is J.C. Penney’s sixth-largest shareholder with a 6.1 percent stake. The firm, a real estate investment trust run by investor Steven Roth, has been reducing its J.C. Penney stake this year.
The retailer’s second-largest shareholder is Soros Fund Management LLC, which held a 9.1 percent stake as of June 30, according to data compiled by Bloomberg. The firm is followed by State Street (STT:US), which has an 8.1 percent holding, and Perry Corp., which owns 7.3 percent, according to the data. Ackman holds an 18 percent stake.
Rick Snyder, senior retail analyst for Maxim Group LLC in New York, said the directors’ primary goal likely was to discourage other activist investors while management works on its turnaround.
“Anyone taking a large stake would have to negotiate with the board, as opposed to being able to acquire shares in the open market,” Snyder, who recommends buying the shares, said today in a telephone interview. “It’s very difficult to see any strategic buyers at this point, but there could be some interest from private equity.”
Potential buyers may find J.C. Penney particularly attractive at its current share price, given that the most recent declines came more from sentiment than fundamentals, Will Frohnhoefer, a special situations analyst for BTIG LLC in New York, said today in a telephone interview. Ackman’s recent agreement with the retailer for the “orderly” sale of his shares may also mean large blocks will soon become available.
“There is a fear that somebody is just going to come in while things are kind of confused and in the mix pick the company off,” he said. “But from management’s perspective, the real focus is just to cool down all the activism to just focus on operations.”
He rates the shares buy.
J. Kyle Bass’s Hayman Capital Management LP hedge fund in the past two weeks has bought some of the company’s secured loans and sold credit-default swap insurance to other investors holding the company’s debt, according to a person familiar with the matter, who asked not to be named because the information is private.
J.C. Penney posted a $985 million loss in the year ended Feb. 2 as former CEO Ron Johnson’s plan to reduce discounts and convert the stores into collections of boutiques alienated customers. Sales plunged 25 percent to the lowest since at least 1987.
Ullman, who had led J.C. Penney for about seven years before being replaced by Johnson, returned as CEO in April and immediately set to work raising funds. The company’s cash pile had shrunk to $930 million as of Feb. 2 from $1.51 billion a year earlier.
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